Market Segmentation

Market segmentation is the identification of those target market sectors who’s needs can be serviced by your company’s products and services, and from which your company can derive a healthy return.

The advantage of segmenting your market into target market sectors is that the more closely defined your target market, the more you can understand that markets needs and the more efficiently you can communicate and sell to it. Additionally, market segmentation assists product development as you focus on the specific requirements of the chosen target market sectors.

Focusing on target market sectors also protects your company in the long term as competitors are more likely to leave you alone in your chosen sectors.

The question is how can you segment the market and identify those sectors which your company should invest in, and how can you develop and service those market sectors to derive the highest market share?

Broadly speaking, potential computer purchasers fall into the private and public sector and individuals.

The Public sector can be divided into the NHS, The Executive Agencies, Local Government, Housing Associations, Education, Fire, Police and Ambulance etc. Each sector can be sub divided by Principality, Region, or in the case of Local Government, by District or County Council etc.

The Private sector can be divided into manufacturing, services, utilities and retail. Another way of segmenting the private sector may be by industrial or commercial classification.

The way you focus does not matter provided it is the best way for you and your company, with its own unique range of products and services.

As an example, if you look at manufacturing that could be segmented into electronics, metal, wood, plastic, or could be segmented by what they produce such as electronics, automotive, furniture, audio, kitchens, bathrooms etc. In the case of electronics you can further segment the market into; test equipment (military, commercial, consumer), automotive (instruments, engine management, wiring looms), consumer (washing machines, dryers, calculators, games).

Each of those companies could be further segmented by location, the number of employee’s, the turnover, whether they import or export, whether they have a large percentage of indirect costs or whether they use chemical processes or other processes. Each stage further narrows a target market sector and differentiates organisations from other organisations in terms of their needs and how to communicate with them.

To be a market segment worth targeting, the segment must have say, at least 50 companies who should be considering your company’s products and services.

The clever thing to do is to look at all potential target market sectors and all the modules, or features, of your product offering and identify a number of target market sectors which have the same requirements and characteristics. This makes your potential market larger and reduces product development costs.

To identify and match target market sectors with the modules or features of your product, you could draw a matrix table with product modules or features down one side and target markets sectors along the top. The idea is to match market sectors with your products modules or features in order to identify and provide as large a target market sector for your products and services as possible. Of course, you must also bear in mind such things as; can you reach the target market sector, and by what means. If one sector necessitates advertising to reach it, whilst the other sector requires direct mail, it is questionable as to whether they should be regarded as one sector. Even if two markets required direct mail to reach them, would the terminology and benefits in the direct mail piece be the same for two sectors?

A number of companies provide lists of organisations and can select lists according to an amazing number of criteria. In the old days selection was by SIC code but these days the selection criteria can be size of company within a SIC code or group of codes, geographic location, turnover, number of employee’s, IT in use, processes used etc. etc.

As you focus on target market segments you are able to focus your direct mail and marketing communications opportunities to their needs. Imagine you are the purchasing director for a bank, you are a member of the Chartered Institutes of Purchasing & Supply and you sit on various strategy committees. Your main worry is the cost of indirect purchases such as paper, furniture, pens, pencils etc. You are also worried about the administration time taken up with requisitioning and purchasing.

You now receive a letter which starts:

Dear Mr Robinson, As a member of the Chartered Institute of Purchasing & Supply, spending more than £5M a year on indirect purchases, would you like to:

  • Reduce the cost of indirect purchases
  • Reduce the time it takes to process requisitions
  • Reduce the time it takes to consolidate req’s to orders?
  • Would like to increase the amount of time available for negotiating strategic relationships with suppliers?

Would you read this letter? Of course you would. This is not junk mail - is it?

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